Our New Taxes

09 Feb

So we all heard that there was no estate tax in 2010, but did you know that there were no step-up in basis rules?  You see, in the years prior to 2010, when someone died and their will gave you their house, you usually got what is often called a step-up in basis.  Your basis in the house was the fair market value of the house on their date of death or their basis, whichever was greater.  In contrast, if the person made a gift of the house to you while they were alive, you did not get to step-up your basis, instead you got their basis, called the carry-over basis.

Our new tax laws actually are retroactive and say the transfer tax limits for 2010 are $5 million.  Of course, it’s not nearly that simple.  They let executors and trustees choose whether they want to limit the estate of 2010 to $5 million and get the step-up in basis, or choose no limit to the lifetime exclusion of the decedent but get no step-up in basis. But there’s more.  The trustee or executor may apply basis to the assets of the estate for the beneficiaries; up to $1.3 million for non-spouses and $3 million for spouses, limited in both situations to the fair market value.  Choices…choices.  What’s one to do?

photo credit: Rob the Moment

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